Solutions to enhance the effectiveness of G7mart operations

Nowadays, Vietnamese people in general and especially Hochiminh city are familiar with foreign invested key retail players: Metro Cash & Carry of Deutschland, Big C of Bourbon Group – Fr

MBMM PROGRAM

LÊ KIM ĐẰNG

SOLUTIONS TO ENHANCE THE EFFECTIVENESS OF

G7MART OPERATIONS

FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT

Tutor: Dr Nguyễn Ngọc Hoà

Ho Chi Minh City

2007

This is my original work Any data and result in this writing is clearly identified

LEÂ KIM ÑAÈNG

I would like to state that nothing ever happens if this work is only made without any precious help and support from so many people This writing is the result of such help and support

My special thanks are due to Dr Trần Anh Tuấn and Professor Jean Pierre Baeyens – the co-Directors of the MBMM program for the establishment

of this program

I am particularly indebted to all the professors of Solvay Business School and of Hochiminh city Open University who were so devoted to deliver their knowledge, experience, ideas and suggestions during our courses (15 quizzes)

Also many thanks to the coordinators of the program: Ms Bùi Phan Bảo Trân and Mr Serge Bywalski, who have stimulated and advised us during the two years of the course

I also owe a great deal to my tutor – Dr Nguyễn Ngọc Hoà – the CEO of Saigon Union of Trading Cooperatives, who has worked so hard to help me to write and to finish this final project

I am so grateful to the G7 Mart Company for permission to use their company’s data to write my final project Special thanks also to my mentor – MBA Nguyễn Ngọc Châu – Regional Business Development manager of G7 Mart Company who has helped and supported me to complete my final duty

Sincerely thanks to my family who gave me lots of material and moral support Without the love and support, I cannot complete this useful program

EXECUTIVE SUMMARY 1

INTRODUCTION 2

CHAPTER 1: THE OVERALL STRATEGY OF G7 MART PROJECT 3

CHAPTER 2: ANALYSIS OF VIETNAMESE RETAIL MARKET AND G7 MART OPERATION 8

2.1 Analysis of Vietnamese retail market 8

2.1.1 Consumer behavior trends 8

2.1.2 Governmental policy and foreign investment 10

2.1.3 The trends of international economic integration 10

2.2 G7 Mart business philosophy and methodology 11

2.2.1 Preliminary current status of the traditional stores 11

2.2.2 Marco Aspect 12

2.2.3 The benefits from micro point of view 14

2.3 The practicability of G7 Mart convenience store’s project 15

2.3.1 Suitable business concept that can get the stores’ support 15

2.3.2 The advantages of the stores that make the G7Mart project feasible 16

2.3.3 The real capacity of the company for doing the G7Mart project 16

CHAPTER 3: CAUSES OF CHALLENGES THAT G7 MART FACES TO RUN THEIR BUSINESS SUCCESSFULLY 17

3.1 Unfavorable governmental regulations cause many difficult for G7 Mart to develop its project: Tax policies, Land Laws and Competition Laws 17

3.3 Disadvantages from business partners 19

3.3.1 Disadvantages of the stores 19

3.3.2 Problems coped with Suppliers and producers 20

3.4 Some articles in the Pilot contracts and agreements that impossible to achieve in real life at the moment 21

CHAPTER 4: SOLUTIONS TO BE DEVELOPED IN 2007 AND THE COMING YEARS 22

4.1 Petition the Government for amending 22

4.2 Recruitment, training and re-structured organization plan 22

4.3 More co-operating with the Stores and strengthening the relationship with the suppliers and producers 23

4.4 Revised the Pilot contracts and agreements 25

CONCLUSION 25

APPENDIX 26

Appendix 1: Pilot Assessment Sheet 27

Appendix 2: List of Pilots in Hochiminh city 30

Appendix 3: Pilot Agreement (in Vietnamese) 36

Appendix 4: Distribution Contract (in Vietnamese) and annex 1, 2, 3 38

Appendix 5: Pilot Contract (Franchising) 50

REFERENCE 59

The overview of G7Mart strategy together with the analysis of the Vietnamese retail market and G7Mart operation can give us a landscape of an increased demand of retail industry and practicability the G7 mart project

However, the reality of developing this system at the beginning phase somehow reveals some problems that are not as per G7Mart Company’s desire The system’s image in the market is badly influenced by these problems

The following project investigates some basic causes that make G7Mart developed unsuccessfully in order to recommend the solutions in the expectation that it can contribute a little to refresh the G7Mart convenience stores’ system in their operation at the first steps of their long-term project

INTRODUCTION

The retail in Vietnam has been slowly but surely changing over the past five years, as the number of supermarkets and modern retail outlets have been gradually increasing, eating into the market share of traditional open-air markets in cities Nowadays, Vietnamese people in general and especially Hochiminh city are familiar with foreign invested key retail players: Metro Cash & Carry of Deutschland, Big C of Bourbon Group – France, Parkson of Lion Group – Malaysia

as well as the domestic ones such as: Saigon Co-op marts, city marts…

Basing on the available factors, opportunities, G7Mart convenience stores start to boom in Vietnam; determine to push to build the system to become one of the biggest domestic retailers

Up to now, the company has started the business for 10 months within its three year plan is to develop and to standardize the system that is the top priority; difficulties are rising that require the company to find quick solutions for them in order to be able to develop in the right direction and continually grow

The objective of this project is to analyze some basic causes that trouble the G7Mart project and to recommend the solutions to be developed

Structure of the Project:

- Introduction

- Chapter 1: The overall strategy of G7 Mart project

- Chapter 2: Analysis of Vietnamese retail market and G7Mart operation

- Chapter 3: Causes of challenges that G7Mart faces

- Chapter 4: Solutions to be developed in 2007 and the coming years

- Conclusion

CHAPTER 1:

THE OVERALL STRATEGY OF G7 MART PROJECT

1.1 Vision and Missions:

Setting up the biggest modern distribution system in Vietnam by associating, upgrading the traditional distribution network in order to create opportunities for the domestic enterprises to offer their products, brands to customers more efficiently Substantially support the business’s growth and brand building to become the local counterbalance to foreign retailer groups

Cooperating with domestic producers to build up the Viet town to the world and contribute to the development of the Vietnam economy

1.2 Project’s investment capitals: at the first stage at 395 millions USD

1.3 Planning: three stages:

The first stage: Fast developing the distribution system by gathering and joining the successful and existing stores and agents The G7 Mart Company upgrades them into the modern and professional distribution system at high level from the available street shops to be G7 mart convenience stores; from agents, distributors to be efficient distribution centers at large volume and then linking the domestic producers together stably

The first 500 G7 Mart convenience stores have been launched on August 5th,

2006 selling a variety of foodstuffs, beverages, cosmetics and consumer products such as: newspapers, phone cards, etc This was the initial step of the 2006 year plan with 500 pilots, 9,500 member-shops, and 70 distribution centers After 5 years, G7 Mart Company will develop 10,000 stores, 7 department stores…

• 2006 – 2007: 1,500 G7 Mart Pilots 7,000 member shops and 100 distribution centers should be officially run and developed

• 2007 – 2010: 7,000 pilots, 200 distribution centers, 7 commercial centers and 7 supermarkets at 65 provinces and cities in Vietnam

The second stage: Joint & cooperation with the big, successful and existing wholesalers/retailers/partners to build and develop the biggest modern distribution centers, supermarkets, hypermarkets at 65 provinces and cities in Vietnam by 100% investment, joint-venture, licensing or franchising

The third stage: Building Viet town to the world – the strong cooperation between the domestic producers and distributors supported by the Government, Vietnamese and Vietnamese overseas customers

1.4 The model of G7 Mart modern distribution system: includes G7 Mart

convenience stores (Pilot), G7 Mart member shops and distribution centers

• Pilot G7 Mart: is the store that meets the G7 Mart’s selection criteria and is officially run in the G7 Mart distribution system The criteria should be:

+ Good location: accessibility to major roads, area of dense population

+ Space: at least 4x7m and good infrastructure: nice built and having the ownership or long term leaseholder

+ Consumption goods and many customers; experienced retailing

+ Capital: 50 – 100million VND; sales turnover at least 10 millions VND/day Pilot G7 Mart’s benefits1:

+ Benefits from the advertising in the store

+ Training course on sales, customer service; Participating in G7 congresses +Provided software of financial management, goods display, inventory control…; Transferring the technology of modern and professional retail

+ Benefits from promotions that G7 mart deal with the suppliers

+ Link to the bank for loan if needed; Good and exact payment

b Opportunity to expand business through: Good products of all kinds; professional service and modern and convenient service

G7 Mart does not create the well equipped expensive stores (air conditioner, expensive interior decoration) that make the investment cost high, unsuitable to lifestyle, consumer behavior and that can impact on the sales revenues G7 mart only upgrade the available and existing stores themselves, people (store owners and their family), adjust some unsuitable operations The all in package of investment cost is at 100 – 150 million VND/store including: re-design the store, display shelves, sign board, training courses, management and control system software …

• G7 Mart member shops: are the ones in the stage to become standardized Pilots Their benefits are:

+ Candidate to be G7 Mart convenience store; Good consumption

+ Good products of all kinds; Buying (Cash & Carry) from G7 Mart distribution center at reasonable price/benefits; Consulting about modern retails The developing of G7 Mart convenience stores is based on 5 competitive criteria: The stores will be equipped to be well identified in order to attract the customers’ attention to visit and buy at the stores; Being polite to create customers satisfaction; Diversified merchandises, competitive price in comparison with the other system; Convenient and professional service; Well merchandise display, easy to select

• G7 Mart Distribution Centers are the ones to supply products for the whole system including the Pilots and the member shops of G7 Mart Similar to the way of building pilots, the system of distribution centers are upgrading from the existing whole sale agents to be the G7 Mart standardized distribution centers Besides that, G7 Mart also invests to build up the warehouses at about 500 – 1,000 m2 G7 Mart distribution centers’ benefits2:

+ Return on investment (R.O.I) is efficient

+ Full of five categories business; One stop purchase

+ Good customer service; Good business training

+ High sales and benefits; Attract huge customers of all kind

• G7 Mart company benefits: its long term investment, at this moment, the business of G7 Mart essentially, is the business of solution and then to create and to strengthen the brand for the company After that it can develop multiform business models

• Co-operation benefits of suppliers:

- Increase market share and market size: faster-smarter- and more efficient

- Save time and cost of distribution and stable and efficient brand building

- Huge sales volume; on time payment; Real time information for better R & D

- Professional supports and co-operation

The evaluation, study and learn experience of retail lessons from the former companies such as: Massan, Day & Night on the investment, co-operation, and effective capital management helped the company to avoid risks that may happen

In the past, convenience stores have failed to catch on in Hochiminh city Massan Marts have been forced to close down all of them because they could not compete

2 Appendix No.4: Distribution Contract

against with the thousands of household-run stores in the city, where the concept of convenience is taken to the ultimate level This is due to many different causes:

* Incorrect opening time

* Ferocious pricing competition with the traditional groceries

* Insufficient products

* Investment cost for a store was so high

Learning the experience from the former retailing system, G7 Mart offers the co-operation model The stores will benefit the increasing sales turnover, and the company will gain more the awareness for its brand Below are the G7 Mart long-term targets:

No Business Quarter

2/06

Quarter 3&4/06

CHAPTER 2:

ANALYSIS OF VIETNAMESE RETAIL MARKET AND G7 MART

OPERATION

2.1 Analysis of Vietnamese retail market

2.1.1 Consumer behavior trends

2.1.1.1 How will Vietnam population look like in 10 years?

2006

Population: 84 million

2016

Population: nearly 100 million

Population are under 30 years old: 57%

Population are under 30 years old: 50%

Consumer base (from 15 to 69 years old): 60 million

Consumer base (from 15 to 69 years old): 70 million

Urban: 27% – Rural: 73% Urban: 33% – Rural: 67%

Average household size: 4.8 Average household size: 4.0

3-generation families: 50% 3-generation families: 30%

(Source: TNS world panel)

2.1.1.2 Social and Economic trends in 10 years:

GDP per capita (USD)

274 400

585 620

1,450

0 300 600 900 1200 1500 1800

(Source: General Statistic Office)

The infrastructure is upgraded, more modern apartments and modern shopping places are built Computers, mobile phones, internet, luxury products …

will emerge Vietnam continues to keep the high GDP growth rate and double the GDP per capita in 10 years ‘time Vietnamese people are getting richer

23%

18%

59%

<190 USD 190-285 USD

Convenience: people are busier They have not time to go to the markets

regularly Shopping behaviors move from daily shopping to bulky buy and stock-up Vietnamese people are in the habit of bargain, of eating fresh foods and of carefully spending That’s why they prefer to traditional open-air market than modern retail outlets But this changes together with their increasing incomes and no much free time They are even willing to pay a little more for their convenience at the convenience stores, by ATMs or online shopping for home delivery

Health: Healthy lifestyle’s choices will drive consumers’ behaviors 70%

housewives in Vietnam are worried about health more NOW than before – (source: TNS Lifestyles). In urban: 80% like to buy food with active ingredients, 37% to have

a choice of lower calories food 36% regularly diet to lose weight Food hygiene and safety standards become more and more important for consumers People feel more comfortable when buying food with clear well known origin source

Indulgence: Metro-sexual revolution: Vietnamese men are starting to pay attention to their appearance from skin and hair to fashion and fitness Women look for prevention, advise, self reward, trust, indulgence and seduction “Me Me Me” driven by both men and women

Consumer’s convenience, health and indulgence will be the key product features Modern shopping basket will become more sophisticated and contain more line extensions There’re 60 million of consumers today and will be 70 million in

2016 They will drive luxury consumption in the future Modern trade will dominate shopping behaviors – shopping less frequently but bulkier

2.1.2 Governmental policy and foreign investment: Under Dispatch

1701/TTg-QHQT (Oct 23 rd 2006), the Government establishes new policies to conditionally open by end of 2008 the domestic retail market to foreign firms; allow them access to the local market This is the time for retail industry to grow Many of the world’s largest retail manufacturers and distributors have already established a presence in Vietnam, including Germany’s Metro Cash & Carry, France’s Bourbon, Malaysia’s Parkson have opened, while England’s Tesco, Singapore’s Giant Asia Investment studied the market Major global corporations, the US-based Wal-Mart and French retailer Carrefour, have included Vietnam in their plans for expansion With the financial power, experience, these foreign companies will push the retail

in Vietnam into an international competition When entering Vietnamese market, these huge Groups will have their own producers and raise more difficult buying conditions for domestic producers if they want to join in their distribution channels

Generally, the distribution system in Vietnam is still rather not good in many aspect: The infrastructure (investment, management, human resources…) is so weak, and unprofessional; the macro support from the Government on economic policy is not enough; the enterprises only focus on production rather than on brand building and operate separately, lack support and co-operation with each other The risk of lagging behind economically and being defeated can be completely happened

2.1.3 The trends of international economic integration: It is evident truth

and forced to push the country economy to develop

- The more the life standard is improved, the more the needs to ask for a modern, civilized, convenient life and fast contact to information and service

- In order to quick integrate into the world, the Government itself needs to amend its macro strategies; administrative reform to comply with international regulations in order to support the enterprises and attract the investment

- The enterprises have upgraded their service, technology, installed new equipments and machineries, and created links to become stronger

- All media have changed by publishing information faster and accurately Every thing has been changed, upgraded in order to be harmony with the trends of global economic development, especially as soon as Vietnam officially becomes the WTO member G7 Mart itself has realized these influences and it is in the progress

to self perfect to meet the demands that are getting higher– offering the model of convenience stores to link the stores into the one large system, to link the producers/suppliers with the stores and to benefit the support from the Government

2.2 G7 Mart business philosophy and methodology:

2.2.1 Preliminary current status of the traditional stores: The products are

distributed to the customers mainly through the traditional markets (40%), family owned stores (44%), supermarkets, convenience stores (10%) and the producers (6%) (Source: General Statistic Office) So, as the foreign retail groups enter in Vietnam,

the competition will occur in the segment of 10% first Gradually, due to their professionalism they bring customers convenience, satisfaction the market share 10% will increase rapidly The more it increases the more 44% market share of family owned stores decrease, causes difficult for these stores especially where supermarkets and convenience stores will be built At the moment, stores freely develop so they run their business very flexibly They have good location for effective investment cost that mostly is not high They are present on all streets, lanes, drives; have created the customer relationship because of effective customer services Furthermore, the business environment is favorable, diversified, especially the retail market grows But most of the stores are invested by the owners spontaneously, subjectively; they lack experience, development orientation, plan for the stores; co-operation and association that make the store controlled poor,

un-standardized and uncontrolled quality input products, high price, and unmethodical merchandise display Their business will face high risks because of little market intelligence, competition information, merchandise, capital investment management knowledge This is the weak point of the Vietnamese small retailers that is very easy for the foreign competitors to attack Society develops, customer needs and expectations are raised; they are still asking for more, so the stores must

be changed in quality Moreover, in the ferocious competitive trend today, the traditional distribution is certainly amended to the development of retail industry such as some of them change to become convenience stores in a system In the other countries as before, when the foreign retail Groups enter the market; they will influence all the distribution system by rapidly expanding convenience stores as well as opening supermarkets/hypermarkets The street stores need to closely associate with each other in a system This association can create strong financial sources, share product/service sources and disperse the risks The store will be stronger when in a system that the G7Mart convenience store chain is one of them because of the strong numerous systems that they can be against versus competitors

2.2.2 Macro aspect: The modern trade is raising and dominated by foreign

invested Group such as: Wal-Mart, Carrefour, Big C, Metro, 7- Eleven… while the traditional trade distribution and retail is under threat of collapse Thousands of household-run stores are almost on small scale, developed spontaneously and managed unprofessionally Meanwhile, the retail market in Vietnam is classified as the third in the world on the attractive level, American enterprises and many other foreign enterprises want to share this attractive market, because they know well that the Vietnam retail system has four main weak points:

2.2.2.1.Finance: Vietnam now has about 200 supermarkets, 32 commercial centers, 1,000 stores operating nationwide with the turnover of goods and service retail estimated at USD 20 billions/year – it’s a very moderate number Meanwhile, only Shanghai or Beijing in China, it’s ten times more than ours The turnover of a

biggest supermarket in Vietnam now only reaches at about VND 200 billions /year

(Source: General Statistic Office)

The foreign groups that are very strong in finance, well experienced in management start to enter the Vietnam market Their registered capital is tens of millions USD, but in some project, their registered capital reaches at hundreds of millions USD For instance the case of Metro and Bourbon – both of them has the

registered capital at 120 millions USD (Source: M.P.I.) Meanwhile, almost the local

retailers lack of experiences, capital sources, professionalism and brand According

to the report of the Ministry of Planning and Investment (MPI), many international groups plan to enter the Vietnam market including the three world retail leaders: Wal-Mart (US), Carrefour (France) and Tesco (UK) and other Asian groups such as: Dairy Farm (Hong Kong) and South Investment (Singapore)…

2.2.2.2 Logistics: the modern distribution requires professional logistics system However, Vietnamese supermarkets still have problems with the distribution centers or suppliers because they do not supply and deliver the needed quantity in time, especially on the occasion of special events: New Year holidays, Xmas seasons and so on About 40% goods in the domestic supermarket in Vietnam now are mostly waiting for the suppliers bring to the shelves to sell so it’s difficult

to compete against with foreign supermarkets Besides that, the dispatch of the delivery vans at right time, right place, and right type is also the problem influencing on the business running, and increasing the labor, management costs

2.2.2.3 Professionalism: The number of successful supermarkets and commercial centers in Vietnam market such as: Metro Group Coop mart, Fivimart, Intimex… are still little The majority of the supermarkets still struggle to find their way This proves the professionalism of Vietnam distribution is still weak

The products now sold through modern distributors are at about 10% in Vietnam, but in China: 30-40% and Thailand: 60% Besides, the domestic distributors have not yet built up the direct distribution channel, but still have to go through many intermediaries so that the prices are not very competitive Our

supermarkets have not taken care much of size/scale, environment and have not also been interested in building the brand and products for the stores

2.2.2.4 Human factor: Besides the Government’s strategic policy, the links between the distributors to create the strength of the union is very important and necessary But the most serious challenge of the domestic retail in the coming years

is that people prefer to co-operate with foreigners than Vietnamese each other

Founded on the base and support of Trung Nguyen Coffee Group which is successful and has good reputation in the Vietnam coffee market, G7 Mart with its available experience on market, large relation, and its strategic target is to establish system based on the humanity; calling for supports, co-operation to bring the common benefits for the community and the country The objective of G7 Mart is to call people to build the distribution of Vietnam, to protect the value of Vietnam brands and to link the retailers and domestic producers to create a stable and long-term market to be protected from the ferocious entry, and competitions of products made in other countries To do so, the Government, stores, producers should clearly recognize and make all efforts to alter based on the mutual support, co-operation

2.2.3 The benefits from micro point of view that it can bring to the stores:

- Large strong competition: it offers to the G7 Mart convenience stores the ability to compete against with the stores that are outside of the G7 Mart system; against with large/big supermarkets especially against with foreign distribution groups

- Influences on the suppliers on the benefits such as: Discount, Promotion The stores can get the benefits from the rental ads contracts of suppliers at their stores through the negotiation of G7 Mart and suppliers

- Developing more the profits and better customer service: water/ gas/ electricity/ telephone bill payment for customers

- Often being trained on store management skills, inventory skills, product display… to cut down the unnecessary costs

- Getting benefits under many sources as soon as the company develops: become share/stock holders, priority on the benefits and support…

2.3 The practicability of G7 Mart convenience store’s project:

2.3.1: Suitable business concept that can get the stores’ support:

The stores that registered to join the system are over 300,000 stores in Vietnam; G7 Mart selected 10,000 stores to develop in the coming years The company concentrated to open the first 500 stores, including 110 stores in Hochiminh city that meet the company selection criteria3 However, there’re stores that meet the G7 mart selection criteria but they are reluctant to join

- Stores want to join because they:

• Consider their retail business as their career and want to invest for long time

• Desire to change the way of selling products that is new and more modern

• Are afraid of competition and backward

• Realize the benefits and advantages when being in a professional system

• Turnover will be increased as soon as the various goods and service are available in the stores

- Stores do not join because:

• Not meet the G7 Mart selection criteria (as: space, capital, experienced…)

• Not want to change into the new business environment

• Not yet believe in the practicability of the project

• Not want to invest more because they are afraid of risk

- Comparison table between the G7 Mart stores and the stores outside the system:

3 an appendix No.1

As the table shown, when joining the G7 Mart Convenience stores, they can

get more benefits and advantages than the other ones who do not join the system

The result of developing the G7 mart in Vietnam by end of January 2006:

Southern central provinces 50 4 600

South east provinces 101 7 900

(*): exclusive Hanoi In Hochiminh city by end of April 2007, there are 177 pilots (G7 Mart convenience

stores) covering all the twenty two districts of the city

2.3.2 The advantages of the stores that make the G7Mart project

feasible: They have favorable locations, retailing experience, and existing

customers They want to develop best service of their stores to increase profit and

create new competitive advantage when being in the large system They accept to

apply the new modern retailing methods to help to push the business development,

generate the advantages and create the links to communicate between stores and

the store and its customers and to be a member in a chain of strong and top retailers

2.3.3 The real capacity of the company for doing the G7Mart project:

What G7Mart is doing now is to bring the benefits for all community and the country

in general, and for the company itself in particular so it has received the high

support of the Government, other economic departments and services, enterprises

and the majority of the stores nationwide The ability of investment capital at the

first stage supported by the 4 banks together with experienced staffs that help the

company feels self confident to develop The company believes in the developing

opportunity, integration of the country into the global economy that helps to offer

many potential immediate chances Besides that, consumption liking and needs of

the customers increases more and more, the availability of infrastructure of the

present stores makes the building up new image, new retail system is achievable

3.1 Unfavorable governmental regulations cause many difficult for G7 Mart to develop its project: Tax policies, Land Laws and Competition Laws

The inappropriate tax and levies duty are the first disadvantage for the G7Mart to deal with the stores because the store owner should pay the tax of business rate, business and individual income tax, sales turnover tax However, the local agency of Tax decides the business rate, business income tax, and sales turnover tax based on their judgement affected by the target that they should collect annually The normal street shops usually bear the lower tax than the equipped stores do So, as the stores join G7 Mart system with the new image, tax should be increased Like the case of mini-hotel and guest-house They are same function, scale, income, sales turnover, but different name and decoration, the tax is varied

Land laws are so complicated questions There are still many overlapped and inadequate regulations related to Land and properties, many of them are not suitable to apply in the current circumstances, but are still in effect causing problems for the enterprises For example:G7Mart’s long term target of 2007 : build

200 Distribution Centers and Base Depots that requires much capital and many pieces of lands, the company can ask for financial supports from many sources: bank loan, raising capital… but because of the present policies and laws on lands and properties such as the period of leasing lands, land using purpose, land using right,

land project; the process to authorize the land using right is so long that the company should wait for years, so the business opportunities will be gone out soon

Besides the pressure of the market economy, the companies in the retail industry have to face the unfair competitions such as the co-operation with the powerful enterprises in the industry; dominant position… According to the report of Bureau of Competition Management under the Ministry of Trade, Vietnam has to face three main issues: the implementation of Competition Laws; the interference

of the authorized State organizations; and the comprehensive measures to create the legal environment to protect the fair competition in distribution and retail industry Although the Competition Laws have been approved by the National Assembly, they still need the Governmental decrees, circulars of the Ministry of Trade, interministerial circulars, and instructions of the Provincial People’s committee

3.2 The shortage of professional employees and the uninteresting human resources policies of the company: - the important factors to run down the project

3.2.1 The shortage of professional employees: To run the project

efficiently, the company needs the well experienced staffs in the retail industry However, almost the key staffs are inexperienced in this domain even they are good

at marketing This is weak point, because of inexperience; they settle the problems

as per their thinking in the way to learn experience from the real problems in the field It causes the system unprofessional Furthermore, because of lacking good people, the G7 Mart staffs have to hold more than one of their functional positions and duties Taking example of sales forces: they have to follow up the achieved pilots to take care their customers, but they also have to develop the new generation stores as their sales targets So the selection and development of new stores have not been well made as well as perform well the agreement on the supports from the company between G7 Mart and pilots such as consulting, helping them in store management and market information provided, market survey…

3.2.2 Human Resources policies are not interesting and clear enough

to attract talent people to join and to retain high performers The recruitments sometime are heavily focused on quantity rather than quality due the the pressure of time Furthermore, the interviewers are not skilled to select the right ones that lead

to the unprofessionalisme of the system and poor retention Many left the company causes the big trouble for it Because there will be empty position in a period to fulfill; no talent people to help and to motivate the new comers and this causes also the negative perception in the company Most Training and development program are not well designed and standardized for every staff’s level They are only short courses The salary and benefits are competititve enough, but only based on sales

3.3 Disadvantages from business partners:

3.3.1 Disadvantages of the stores:

3.3.1.1 Capital limits are the problem of most of the traditional retail stores They are founded on the original background of small scale store,

limited capital the store owners do not or can not invest more in their stores

3.3.1.2 Stores in the G7Mart store system: (Pilots)

Human being is the key factor, but almost the store owners are not well educated and are very conservative To upgrade the store, the company must standardize service through the training sales skill, informatics technology system application in management and software to control the sales and inventory, payment… However, the new technology can help them to improve their business, but it’s difficult for them to learn it at their ages and education level This can destroy the unity in the total system of G7 Mart pilots

grocery store owners is the big problem When joining the G7 Mart convenience stores, they have to change all their habits: service at the stores, well and correct dressing (uniform), polite and civilized behavior (via customers of course, and even

via their employees) The goods display can bring many benefits: such as coordinated products should be put close to each other to stimulate combined purchases But because of their habits, they put the goods not according to any standards: at hand level, categories, hot and impulse zones to attract customers… This influences the image of the store, and makes it unprofessional and no differentiation between the upgraded store and the old style one, sales revenue and margins can not increase, and dangerously the objective of G7 Mart convenience store can be damaged

3.3.1.3 Stores out of the system:

subjective; not worried about the competition Their retail business only combines two factors: place and goods; but goods are kind of “we sell what we have”, not

“we sell what you need”, especially the stores temporarily with good sales volume

at high profit and still have not the real competitors in their area Therefore they are over self confident on their competition ability and do not think that they need to upgrade and improve in order to be better in competition in the future Most of them

do not recognize the model of the modern convenient retail They misunderstand that the company want to develop this model is only to go to their store to make an advertising board They do not want to invest, but prefer to receive money to upgrade the stores

3.3.2 Problems coped with Suppliers and producers:

convenience stores At present, G7 Mart has 70 distribution centers to supply goods, inventory… The benefits that G7 Mart would like to bring to the consumers are the right and competitive price because G7 Mart buys directly from the producers, the suppliers and bring to their convenience stores Now, it has about 200 suppliers as business partners of G7 Mart, but they believe soon or late all the domestic producers and suppliers will gather into one channel The final goal of G7 Mart is to

become the official distributor of all producers that their products are now available

in the stores This is the big problem because it’s very difficult to achieve almost producers that have built up their own big distribution system with the terms of discount, inventory… For example: Uniliver, P&G, Nutifood… have their strong distribution system up to now, how can they accept to share with G7 Mart? They are worried about the market share, the pricing control…

The production capacity of the local producers and suppliers still have limited; their ability is not strong enough to invest in the development by themselves and it lacks the links, but sometimes wants to destroy each other in the business activities Therefore, it’s rather difficult for G7 Mart when it does want to co-operate with the business partners Furthermore, the local producers and suppliers prefer to co-operate and link with the foreigners, do not like to link between the local domestic enterprises each other This can be the biggest challenge not only for G7 Mart Company but also for all the domestic retail system

in the coming time

3.4 Some articles in the Pilot contracts and agreements that impossible to achieve in real life at the moment

Article 4.3 and 4.4: Store must buy products of G7Mart or G7Mart’s

authorized partners; should not buy from someone else without G7Mart’s permission

in written form This can only be applied if G7 can supply all the products in need and in quantity However at the moment, they have not enough products to supply the stores and the stores must buy from other sources to increase sales

Article 5.1: store must buy equipement from G7Mart or G7Mart’s authorized partners to upgrade, decorate, repaire their store. This article reveals irreasonable issue Because the store has its ownership and right to buy equipment from any sources on the condition that it meets the G7Mart standards

These articles make the stores feel uneasy and bound too much to G7Mart

CHAPTER 4:

SOLUTIONS TO BE DEVELOPED IN 2007 AND THE COMING YEARS

As mentioned above, the duty in 2007 is to achieve 4.000 pilots and 6.000

member-shops and to meet operation requirements The analyzed causes require

the solutions in order to refresh the whole system of G7Mart convenience stores and

to avoid the bad influence for the store image The following solutions can be

considered to solve their current difficulties and to continually grow

4.1 Petition the Government for amending Tax policies, Competition

regulation, trade barriers The legal environment should be improved to create

advantages for the enterprises All the regulations, taxation must also be applied

equally and fairly treated to prevent unfair competition

4.2 Recruitment, training and re-structured organization plan:

Developing an effective internal management organization is an important

ingredient in the re-structuring plan in the coming years The key factor to consider

is that the organization be responsive to the needs The choice of appropriate

organizational structure depends on the G7Mart’s mission, objectives to set for it

HUMAN RESOURCES G7 MART

4.2.1 New recruitment: Management recruits the best people such as:

excellent personnel specialized in retail from multi-national corporations to be

employees and gives them many operational decisions to motivate them And the

human resources policies should be changed Only the skilled people are recruited

with favorable policies: overseas specific training courses, promotion prospects, extrinsic benefits: incentives, reward or Medicare for their family…

4.2.2 Establish good company culture, philosophy, and business ethic to

contribute to the society Team members are appreciated and rewarded for their results G7 Mart should create a work environment where motivated Team Members can flourish and succeed to their highest potential Employees appreciate each others contributions, take responsibility for their actions, have the right to access company information such as the books, and collectively work together as a team to succeed, participate in training courses by developing and applying training and personnel professional development programs This strategy works because by making the employees happy, they are contributing more success for the company

4.2.3 Specialized functional duties: the situation today requires the

specialization Instead of one person in charge of taking care of pilots and of

developing the new ones, it should have the specific positions: Store Development Executives to select stores to invest and Store Care Executives to consult the stores

- Store Care Executives: specialized in consulting the stores on product

display in order to catch customers’ eyes, impulse their buying, product and inventory management, what they should buy and sell to increase sales turnover…to maximize profits and minimize costs Each staff takes care of 3-4 stores only

- Store Development Executives: take responsibility to evaluate the ability of

stores to select and to invest The criteria are listed in the Pilot Assessment

4.3 More co-operating with the Stores and strengthening the relationship with the suppliers and producers:

4.3.1 Supporting capital for the stores in need: for the stores need

investment capital, G7 Mart should associate with the banks for loan if needed Other solution that G7 Mart can apply is to co-operate with the store owners to develop the new generation G7 Mart stores in which they can share 50% in capital

and human resources These new stores will be more professional, outstanding

based on the slogan: “Friendly and Convenience”

4.3.2 Closer co-operation with the Pilots (stores in the system):

- Sending the Store Development Executives specialized in giving the

handbooks and specific instructions for the Pilots on store management principles

- By the Store Care Executives regularly exchange with the store staffs

the store management, selling, customer care service skills, IT system

- Specific sales planning for every pilot in the region, consulting them

to make purchase orders for the good sales to ensure the profitability

- By the POS system and real checking to reduce the business risks, G7 Mart helps Pilots display and control the merchandise, reasonable inventory daily

- Organize the interesting and regular sales promotion at the Pilots to attract customers to visit the pilots and buy Delivery brochure, leaflet to customers

- Help the pilots to thoroughly exploit the store advantages to bring the benefits for the pilots: advertising, display

- Promote an emulation movement in selling for the pilots in the same region to push the sales turnover

4.3.3 Persuading Stores out of the system through the activities to

strengthen develop the pilots efficiently; the company will have strong evidence to persuade them to join the system

4.3.4 Strengthening relationship with Suppliers and producers:

- Co-operate; consult to develop products in the system of the stores; thoroughly exploit suitable programs and strategies of merchandise development

the benefits of suppliers; Undertaking to effectuate correctly the policies, sales strategies; strictly control the programs, selling price in all the system

- Collect market information to exchange with each other;

- Create links to develop in domestic as well as in oversea market

- Support the local producers and suppliers to develop production Cooperate with foreign and domestic partners to establish a joint venture/joint stock company to build the system more professional, specialized and more convenient to exchange products, market information, investment consultation, human resources development, especially to prepare for the next step to build Viettown abroad

4.4 Revised the Pilot contracts and agreements in way of mutual benefits,

because the contract is defined as the agreement between the two parties on the benefits and duties The company should negotiate with the stores first to close It is necessary to apply specific and flexible contract for each store depending on the store’s specialties, should not apply the unique form for every one

The more the country develops, the more supermarkets and modern retail outlets expand Thanks to strong growth in consumer spending, Vietnam has emerged as one of the most attractive retail markets Consultant AT Kearney rates Vietnam the world’s third most attractive market with yearly growth of up to 30% (only followed by India and Russia) There’s still great demand for commodities in the market of over 84 million people in which 52% under 30 years old Vietnam is expected to be the potential market for convenience stores that promises to huge growth Retail business will grow and meet the demand of civilized, modern purchasing in the nowadays society Many traditional markets in Hochiminh city are changing into modern trade centers such as the markets: Bà Chiểu, Nguyễn Văn Trỗi, Văn Thánh

The total retail sales revenue for goods and services across Vietnam in the first months of this year is estimated to increase 24.1% on year to VND 112 trillion (USD7 billion), reported the Government’s General Statistics Office (GSO)

The modern retail outlets (supermarkets, convenience stores) increase from 18% in 2004 to 23% in 2005 while the traditional markets, malls, family owned stores decrease from 82% to 77%

Rising economic trends, favorable market condition, consumption behavior lead to a prosperous future for G7 Mart project

G7 Mart has their own strong capabilities and they are taking advantage of this through building the project of G7 Mart Convenience stores However it should absolutely and quickly solve the causes for undesired effects of their project in order for their convenience stores to develop as the target

PILOT ASSESSMENT SHEET

Tel fixed No:

Cell phone No:

RELATIVE INFORMATION Family relationship:

Spouse’s name: DOB Working place Position

Relationships that can influence on the business of the store:

Siblings: DOB Working place Position

STORE CURRENT STATUS